Adaptive Review 11.4

If the employer did not offer coverage to workers as required, the penalty in 2021 wa

$2,700 per full-time employee (excluding the first 30 employees).

If only a few workers were not covered, or if that coverage did not meet minimum value standards, the fine in 2021

$4,060 per full-time employee who received cost assistance (but never more than $2,700 per full-time employee minus the first 30).

Marketplace offers plans of different levels

(Bronze, Silver, Gold, and Platinum). Even the lowest level (Bronze), though, must provide minimum benefits, minimum protections, and minimum value. People who are not offered affordable, qualifying coverage by employers may qualify for cost assistance on the ACA Marketplace based on their income. Nearly 90% of Americans who have bought through the Marketplace received financial assistance of some type.

An employer having an experience unemployment tax rate of 3.2% in a state having a standard unemployment tax rate of 5.4% may take a credit against a 6.2% federal unemployment tax rate of

5.4% - The key is that the overall payments made by the employer should not exceed the overall federal unemployment tax rate of 6.2%. Therefore, all 5.4% of the state's standard unemployment tax rate may be credited against the federal percentage.

How are FTEs calculated?

A firm's FTEs are comprised of (1) actual full-time employees (employees who work at least 30 hours a week) and (2) part-time employees who work less than 30 hours a week but more than 120 days per year. Part-time employees are cumulated into FTEs by dividing the total number of hours they work in a week by 30.

Unemployment tax payable under the Federal Unemployment Tax Act (FUTA), is

A tax-deductible employer's expense. - Although these taxes are not deducted from employee paychecks as are FICA taxes, they are still a very real expense to the employer. As such, they are deductible by the employer for federal income-tax purposes.

Form 1094-C

ALEs file to transmit Forms 1095-C to IRS

Form 1095-C

ALEs provide employees proof of insurance

The ACA also prohibits other forms of discrimination by allowing insurance companies to take into account only these factors when setting premium rates:

Age—Because elderly people use more services than younger people (but they cannot be charged more than three times what younger people are charged for the same plan) Geographic location—Because medical care is more expensive in New York City than it is, for example, in rural Kansas Tobacco use—Because people who smoke will generally have more health problems than those who do not Individual versus family coverage—Because a family of four will obviously tend to be use more health services than will a single individual

The Federal Unemployment Tax Act (FUTA)

Allows the employer to take a credit against the FUTA tax if contributions are made to a state unemployment fund. - Many states run their own unemployment fund and require employers to make contributions to it. If such is the case, the employer does not have to pay more overall unemployment tax. The employer may credit the amounts paid to a state fund against contributions required by the federal government.

The IRS uses an 11-part version of the common law test -Financial control - Unreimbursed business expenses

Although employees often have unreimbursed business expenses, this is more commonly a characteristic of independent contractors.

What is an ALE?

An ALE is a firm that has employed an average of at least 50 full-time equivalent employees (FTEs) on average business days during the preceding year.

In which of the following types of action, brought against a CPA who issues an audit report containing an unqualified opinion on materially misstated financial statements, may a plaintiff prevail without proving reliance on the audit report?

An action brought under Section 11 of the Securities Act of 1933. - With minor exceptions, a plaintiff in a Section 11 suit need not provide reliance in order to prevail.

ACA Health Insurance Marketplace

As noted earlier, Americans not covered by employers' plans, Medicare or Medicaid, CHIP, the Veterans Administration, or other government programs may buy policies from private insurance companies or the ACA Marketplace. Each state has the option to set up its own marketplace, but the majority failed to do so, and the federal government may (and did) step in to operate such a marketplace in more than 20 states. The Marketplace is a one-stop, online location at HealthCare.gov where applicants may shop, compare options, and enroll in an insurance plan while determining whether they are eligible for federal tax credits, subsidies, or discounts that will help them cover their insurance costs.

Eliminating Lifetime Limits

Before the ACA, insurance companies often placed caps on the total dollar amount they would spend on an individual. A person who contracted a disease that was chronic and very expensive to treat could be denied coverage after a while. The ACA eliminates such lifetime dollar limits (as well as annual dollar limits) but only for "essential health benefits."

No Dropping Coverage Because of Illness

Before the ACA, people who became ill and therefore especially needed health care coverage often saw that coverage eliminated. Even someone who had bought a health insurance policy and paid premiums might be dropped because, for example, the insurer reexamined the insured's application and detected unintentional mistakes or minor omissions. The ACA prohibits insurance companies from canceling coverage for reasons other than failure to pay or fraud. A policy cannot be canceled just because the insured became sick.

Coverage of Preexisting Conditions

Before the ACA, people who had diabetes, cancer, or many other preexisting conditions often found it very difficult to obtain health care insurance. The ACA prohibits insurance companies from denying coverage on grounds of preexisting conditions. Nor may companies eliminate benefits, refuse to renew coverage, or otherwise discriminate on those grounds.

Coverage must be affordable, costing less than 9.83% in 2021 of the employee's income. Coverage must provide "minimum value." (The employer covers at least 60% of the cost.)

Bronze level—Employer covers at least 60% of cost of covered services. Silver level—Employer covers at least 70% of cost of covered services. Gold level—Employer covers at least 80% of cost of covered services. Platinum level—Employer covers at least 90% of covered services. Coverage must be equivalent to the ACA Marketplace's Bronze benefit package, which includes, as mentioned, no gender discrimination, no exclusion for preexisting conditions, no yearly or lifetime limit on coverage for essential benefits, deductible and out-of-pocket maximums, and coverage of the 10 essential health benefits.

Under the Securities Exchange Act of 1934, which of the following penalties could be assessed against a CPA who intentionally violates the provisions of Section 10(b), Rule 10b-5 of the Act?

Civil liability of monetary damages. Criminal liability of a fine. - Any intentional violation of any provision of the 1934 Act is a crime. It should also be noted that potential criminal penalties include jail time, as well as fines. In addition, such a violation certainly opens an accountant up to potential civil liability, because the courts have implied a private right to sue on behalf of investors injured by Section 10(b)/Rule 10b-5 violations.

Extensions of Coverage—The ACA has many provisions that extended health care coverage to more people and improved the quality of coverage for many who are already covered.

Coverage of Preexisting Conditions No Dropping Coverage Because of Illness No Dropping Coverage Because of Illness— Eliminating Gender (and Other) Discrimination Extending Coverage for Children Minimizing Out-of-Pocket Expenses— Eliminating Lifetime Limits Medicaid Expansion Employer Mandate

Taxes payable under the Federal Unemployment Tax Act (FUTA) are

Deductible by the employer as a business expense for federal income-tax purposes. An employer pays for all obligations under FUTA and the employees do not contribute out of their paychecks. These taxes are fully deductible by the employer when the employer calculates federal income taxes.

Which ACA provisions help pay for the health care that it provides?

Employer mandate. -The ACA's employer mandate helps fund the ACA by imposing penalties on employers of a certain size who do not provide enough of their employees with sufficient health insurance coverage.

Disclosures

Firms must disclose the cost of health coverage (the cost to both the employer and the employee) on each employee's Form W-2 (though this does not mean that the coverage is taxable).

Under Section 11 of the Securities Act of 1933, which of the following standards may a CPA use as a defense?

Generally accepted accounting principles. not Generally accepted detection standards. Section 11 imposes civil liability for untrue statements or omissions made by CPAs who do not use due diligence. Failure to follow GAAP is evidence of a failure to use due diligence; failure to use "generally accepted fraud-detection standards" is not.

Which defense must an accountant establish to be absolved from civil liability under Section 18 of the Securities Exchange Act of 1934 for false or misleading statements made in reports or documents filed under the Act?

Good faith and lack of knowledge of the statement's falsity. - Section 18(a) establishes a presumption of liability for false statements in filed documents, but allows defendants to escape liability if they prove that they "acted in good faith and had no knowledge that such statement was false or misleading."

Form 1095-A

Health Insurance Marketplaces transmit form to IRS and provide purchasers proof of insurance

Turtle was audit partner on ABC Accounting's audit of Jemison Corporation. Turtle knew that the audit was ineptly performed, although he hoped (without much reason) that the financial statements were accurate. He certified them as such. Which of the following is true?

If a court decided that Turtle had acted willfully, he could be held criminally liable under the federal securities laws. - The federal securities laws' criminal provisions punish "willful" violations of the 1933 and 1934 securities acts.

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA who certifies financial statements included in a registration statement generally will not be liable to a purchaser of the security

If the CPA can prove due diligence. - This is a negligence-based statute. If a defendant, such as an auditor, can prove due diligence, that defendant has disproved negligence and can avoid liability.

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, a CPA will not usually be liable to the purchaser.

If the purchaser is contributorily negligent. If the CPA can prove due diligence. - Section 11 tries to prevent misstatements in the securities industry.A CPA cannot be held liable for "innocent mistakes." If, after properly exercising due diligence, a CPA is satisfied that there are no material errors, (s)he will not be liable under Section 11. It is for intentional or reckless misstatements that liability is imposed.

The IRS uses an 11-part version of the common law test -Financial control - Availability to market

Independent contractors often advertise and in other ways seek to provide services to others in the marketplace

The IRS uses an 11-part version of the common law test - Behavioral control (Training)

Independent contractors typically use their own methods. If they are trained in the principal's methods, workers are more likely to be employees.

Individual Mandate [Repealed]

Insurance works best if risk is spread over a large pool of people, and the ACA originally required individuals either to pay to obtain coverage or to pay a tax. This was known as the individual mandate, and Congress has repealed it.

Form 1094-B

Insurers file to transmit Form 1095-B to IRS

Form 1095-B

Insurers provide enrollees proof of insurance

What is the standard that must be established to prove a violation of the anti-fraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934?

Intentional misconduct. - To be liable under Rule 10b-5 of the 1934 Act, a defendant must act intentionally. Courts hold that a defendant must act with scienter (intent) or "extreme recklessness" (which is similar to scienter) to be liable under 10b-5.

Under the liability provisions of Section 18 of the Securities Exchange Act of 1934, for which of the following actions would an accountant generally be liable?

Intentionally preparing and filing with the SEC a reporting corporation's incorrect quarterly report. - C is the best answer, because public corporations must file 10-Qs with the SEC and negligently false statements therein are remediable under Section 18.

Medicare Surtax (also known as Net Investment Income Surtax and as the Unearned Income Medicare Contribution Tax)—The ACA imposes a 3.8% surtax on net investment income (NII) of individuals and estates and trusts above a certain level.

Investment income does not include: Wages Social Security benefits Unemployment compensation Life insurance proceeds Active trade or business income

The Medicare NII surtax falls primarily on the relatively wealthy because it applies only to investment income earned by individuals with AGIs above these levels (in 2016): $200,000 for a single taxpayer $250,000 for joint filers $125,000 for a married taxpayer filing separately

Investment income includes: Capital gains Dividends from stocks Interest from bonds or loans Royalties Gains from the sale of investment real estate Rents

If Sally is an independent contractor, Sally:

Is responsible for paying her own income tax and self-employment (SE) tax (covering social security and Medicare); May need to make estimated tax payments during the year to cover her tax liabilities; and May deduct business expenses on Schedule C of her tax return.

Which of the following is not a significant feature of the ACA?

It completely socializes health care in the U.S. - The ACA is built largely around the preexisting system of health insurance provided by private companies, so it does not completely socialize health care in the U.S.

How does the ACA enable parents who purchase family insurance plans to provide coverage for their adult children?

It enables parents to buy plans to provide coverage for adult children even if the children are entitled to purchase health insurance at their own place of work. - The ACA enables parents to purchase plans that provide coverage for their adult children even if the children are entitled to buy health insurance at their own place of work so long as the children are under age 26.

Juan recently started operating a flower shop as a proprietorship. In its first year of operations, the shop had a taxable income of $60,000. Assuming that Juan had no other employment-related earnings,

Juan must pay self-employment tax on the earnings of the business. - As a sole proprietor, Juan is self-employed and must pay self-employment taxes on the earnings of the business, which are, in essence, also his earnings.

Dart Corp. engages Jay Associates, CPAs, to assist in a public stock offering. Jay audits Dart's financial statements and gives an unqualified opinion, despite knowing that the financial statements contain misstatements. Jay's opinion is included in Dart's registration statement. Larson purchases shares in the offering and suffers a loss when the stock declines in value after the misstatements became known. In a suit against Jay, under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Larson must prove all of the following, except

Larson was an intended user of the false registration statement - A private action under the 1934 Act is similar to a common-law fraud action in that the plaintiff must show that he relied on the misstatement and that the defendant intended to deceive in making the misstatement.But, unlike a common-law fraud action, there is no requirement of privity, or even that the plaintiff was an intended user of the false statement.

While conducting an audit, Larson Associates, CPAs, fails to detect material misstatements included in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose. Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities under Section 11 of the Securities Act of 1933?

Larson will not be liable if it had reasonable grounds to believe that the financial statements were accurate. - An accountant defendant has a due diligence defense under Section 11 if it can prove that it acted carefully in performing the audit, even if mistakes were made.However, the standard is one of negligence, not scienter, and the burden of proof is on the accountant.

"control test"

Many courts hold that workers are employees if their principals "control" or have the power to control the method and manner of their work, but independent contractors if not. This common law -- Typically is supplemented by many additional factors, such as whether or not the worker (a) is generally on the job 40 hours a week, (b) works primarily for this principal, (c) uses the principal's tools, and (d) earns most of his or her income from this principal. The more of factors (a) to (d) that are present, the more likely the worker is an employee rather than an independent contractor.

However, if Sally is an independent contractor, the business that hires her:

May be required to give Sally a Form 1099-Misc (Miscellaneous Income) to report what it has paid to her.

If Sally is a common law employee, her employer:

Must withhold income tax and her portion of FICA (social security and Medicare) taxes; Is responsible for paying FICA and FUTA taxes on Sally's wages; and Must give Sally a Form W-2, showing taxes withheld

A CPA firm issues an unqualified opinion on financial statements not prepared in accordance with GAAP.The CPA firm will have acted with scienter in all the following circumstances, except where the firm

Negligently performs auditing procedures. - Scienter, very loosely defined, is a "guilty mind." If a person intentionally does something incorrectly, then (s)he acts with scienter. Scienter may also be found in a person intentionally disregarding the truth. The key is intent of some kind, as opposed to simple carelessness.When negligence is found, a person is found liable for failing to use due care, and not for intentional wrongdoing.

The taxable amount subject to the 3.8% surcharge is the lesser of:

Net investment income, or The excess of AGI over the AGI thresholds.

Reasons a principal might prefer a worker to be labeled an "independent contractor" rather than an "employee" include that the principal is:

Not liable to withhold and pay over worker's income tax Not liable to pay FUTA taxes Not liable to pay its share and to withhold and pay over worker's share of FICA taxes (for social security and Medicare) and AMT (Additional Medicare Tax) Not liable to pay overtime and minimum wages under the Fair Labor Standards Act (FSLA) Not liable for employee discrimination under the Civil Rights Act of 1964, which protects employees against discrimination of the basis of race, gender, religion, color, and national origin Not liable for failure to provide leave and reinstatement under the Family Medical Leave Act (FMLA) Less likely to be liable to third parties for injuries caused by workers' torts

How are the fees imposed

Note that while the responsibility to provide coverage takes into account an employer's total number of FTEs, the fees imposed are based on number of full-time workers, not FTEs.

The IRS uses an 11-part version of the common law test -Financial control - Worker's investment

Often, though not always, an independent contractor will tend to have a significant investment in the tools or facilities she uses to perform services for another. Employees are much less likely to make such investments.

essential health benefits" is broadly defined to include these 10 items

Outpatient services (including diagnosis, observation, consultation, treatment, intervention, and rehabilitation services) Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services Prescription drugs Rehabilitative services and devices Laboratory services Preventive and wellness services Pediatric services

Medical and dental expenses that are not deductible and therefore do not count toward the 7.5% level include, among others:

Over-the-counter drugs Funeral expenses Toiletries Most cosmetic surgery (unless necessary to improve a deformity) Nicotine patches Maternity clothes Health club dues Life insurance premiums Illegal drugs or operations Teeth whitening Veterinary fees Related rules The expenses must be itemized on a Schedule A to be deductible. The amount of insurance premium paid by a taxpayer's employer does not count toward the threshold, although those paid by the taxpayer are deductible. Any medical expenses paid with pretax dollars (via a Flexible Spending Account [FSA] where a tax benefit is already enjoyed) cannot be claimed toward the itemized deduction. Expenses must have been paid in the taxable year.

Which of the following is typically not a medical care expense that may be deducted if the taxpayer meets the applicable threshold?

Payment for nicotine patches - Payments for such things as over-the-counter drugs, funeral expenses, toiletries, most cosmetic surgery, nicotine patches and nicotine gum, maternity clothes, and health club dues are not typically deductible.

what is the penalty ALEs must provide Form 1095-C to covered employees and file both 1095-C and Form 1094-C with the IRS.

Penalty—ALEs that fail to file may be penalized up to $280 in 2021 for each failure to file.

Why must ALEs must provide Form 1095-C to covered employees and file both 1095-C and Form 1094-C with the IRS.

Purpose—The information disclosed on these forms enables the IRS to determine the employers that are required to offer minimum essential coverage to all their full-time employees but are not doing so.

For the entire year of year 2, Ral Supermarket, Inc. conducts its business operations without any permanent or full-time employees.Ral employs temporary and part-time workers during each of the 52 weeks in the year. Under the provisions of the Federal Unemployment Tax Act (FUTA), which of the following statements is correct regarding Ral's obligation to file a federal unemployment tax return for year 2?

Ral must file a year 2 FUTA return because it had at least one employee during at least 20 weeks of year 2. - You Answered Correctly! A return must be filed under FUTA if there are ANY employees during a substantial portion of the year.If Ral had one or more employees in any 20 or more different weeks in a given year, a return must be filed.

Newton just joined ABC Corporation and has come to you for advice regarding the Federal Insurance Contributions Act (FICA), which will be an area of responsibility for him in his new position. Please tell Newton which of the following is true.

Sandy was a fully insured worker who had a heart attack and died on the job. Sandy's widow is entitled to survivor benefits. - Fully insured workers earn survivor benefits for their widow or widower and dependents.

What about small employers?

Small employers do not pay the shared responsibility fee. They qualify for various levels of employer tax credits to help them afford to offer coverage to employees.

The Cadillac Tax [repealed]—

So-called Cadillac Plans (employer-sponsored plans that provide especially generous benefits) were to be subject to a 40% excise tax, but this tax was repealed in 2019 before it ever went into effect.

Income from which of the following is (are) deemed unearned income for purposes of the ACA's Medicare surtax on unearned income?

Stocks Bonds Capital gains

Who are dependents?

Surprisingly, perhaps, spouses are not considered dependents, so coverage need not be offered to spouses. It must be offered only to employees and nonspousal dependents, primarily children. Stepchildren and foster children are excluded

The Model Bakery Corporation (MBC) has not been withholding and remitting its federal taxes as it should have. The federal government is considering suing some of MBC's employees under 26 U.S.C. Sec. 6672 in order to hold them personally liable to pay these taxes. Which of the following persons, all of whom knew that MBC was not withholding as it should have, is most likely to be deemed a "responsible person" for purposes of Sec. 6672?

Telford is MBC's CFO. He never pays any bills himself. He typically instructs MBC's bookkeeper, Sally, as to which bills to pay. - Telford has the discretion to decide which bills are paid and which are not. That is the key to determining who is a responsible person. As CFO, Telford is an officer, probably owns stock, probably takes an active role in daily management, and probably exercises control over daily bank accounts and records. He is the best choice here.

The Medicare surtax on NII does not apply to any amount of gain

That is excluded from AGI for regular income tax purposes, such as the first $250,000 ($500,000 for married couples) of gain recognized on sale of a principal residence.

Willful violations of which of the following acts can create the basis for federal criminal liability?

The 1933 Securities Act. The 1934 Securities Exchange Act

Revenue-Raising Provisions

The ACA annually provides around $100 billion in subsidies to low- and middle-income Americans to help them pay for their new coverage. It also provides employer tax credits, marketplace subsidies, and expands Medicaid and CHIP. How does it pay for these things? In addition to the money raised through the employer mandate, the ACA helps to pay for all its benefits by imposing a series of taxes and fees, including the following:

Medicaid Expansion

The ACA expanded eligibility and federal funding for Medicaid by enabling states to extend Medicaid coverage to all legal residents 65 and older or with an income up to 133% of the poverty line. Because most poor children are covered by CHIP plans, the goal was to increase coverage for poor adults. However, the Supreme Court held that states had the option not to participate in this expansion, and many states chose not to for various fiscal and political reasons.

Additional Medicare Tax

The ACA imposes a 0.9% Additional Medicare Tax (AMT) on wages and self-employment income above a certain amount (e.g., $200,000 for a single taxpayer, $250,000 for joint filers, and $125,000 for a married taxpayer filing separately). Employers are required to withhold this surtax from employees' paychecks but need not match it. This tax also falls primarily on the relatively wealthy. But passive investment income is excluded.

Medicare Surtax (also known as Net Investment Income Surtax and as the Unearned Income Medicare Contribution Tax)

The ACA imposes a 3.8% surtax on net investment income (NII) of individuals and estates and trusts above a certain level. The Medicare NII surtax falls primarily on the relatively wealthy, because it applies only to investment income earned by individuals with AGIs above these levels (in 2016): $200,000 for a single taxpayer $250,000 for joint filers $125,000 for a married taxpayer filing separately

Medical Device Excise Tax [repealed]

The ACA originally imposed a 2.3% excise tax on sales of certain medical devices, but it was repealed in December 2019.

Medical Care Expense Tax Deduction

The ACA saves the government money by restricting taxpayers' ability to deduct unreimbursed medical and dental expenses for themselves and for their families from their individual income taxes. For tax returns filed in 2021, taxpayers could deduct qualified, unreimbursed medical expenses exceeding 7.5% of their 2020 adjusted gross income. Medical and dental expenses that may be deducted (if they accumulate to more than 7.5% of AGI) include, among others: Payments for the diagnosis, cure, mitigation, treatment, or prevention of disease Payments for treatments affecting any structure or function of the body Prescription medicines or insulin Doctor-ordered medical exams, X rays, and lab services Qualified long-term care services Medical treatment at a facility for drug or alcohol addiction Medical aids such as eyeglasses, hearing aids, braces, and wheelchairs Artificial teeth Ambulance service

For a CPA to be liable for damages under the anti-fraud provisions of Section 10(b) and rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove all of the following, except that

The CPA violated generally accepted auditing standards. - Section 10(b) and Rule 10b-5 govern material misstatements and omissions that are related to the sale of any security. To win a case against a CPA based on one of these theories, the plaintiff must show that (s)he relied on the misstatements; that the misstatements were material; and that the CPA knew of the misstatements (acted with scienter). If GAAS has been followed, this probably indicates that a CPA will not be liable, but a CPA may lose a case like this even if GAAS has been followed, so long as all three elements can be shown.

CPA Sobel engages in insider trading of the shares of an audit client. She is caught. The SEC brings a civil action and forces Sobel to give up her insider-trading profits and pay a civil fine of three times the amount of the profits. Sobel thought she had been punished sufficiently, but then the DOJ began an investigation. Which of the following is true?

The DOJ can choose to bring criminal charges to supplement the SEC's civil action. - It is common for the SEC to bring civil charges and then the DOJ to bring criminal charges in insider-trading cases.

11-part version of the common law test

The IRS uses a test that looks at (a) behavioral control (two factors), (b) financial control (five factors), and (c) the type of relationship between the parties (four factors) to distinguish between employees and independent contractors. No single factor is conclusive.

Section 10(b)/Rule 10b-5 are fraud provisions; they do not remedy mere negligence.

The SEC may bring civil charges against Seimone. - The SEC may bring civil charges against Seimone.

Ivor and Associates, CPAs, audit the financial statements of Jaymo Corporation. As a result of Ivor's negligence in conducting the audit, the financial statements include material misstatements.Ivor was unaware of this fact. The financial statements and Ivor's unqualified opinion are included in a registration statement and prospectus for an original public offering of stock by Jaymo.Thorp purchases shares in the offering. Thorp receives a copy of the prospectus prior to the purchase, but does not read it. The shares decline in value as a result of the misstatements in Jaymo's financial statements becoming known. Under which of the following Acts is Thorp most likely to prevail in a lawsuit against Ivor?

The Securities Act of 1933, Section 11 will prevail not the Securities Exchange Act of 1934, Section 10(b), Rule 10b-5The key fact here is that Ivor did not know of the error. It acted negligently, but not with bad intent (scienter). Absent bad intent, there can be no fraud and therefore no liability under Section 10(b) of the 1934 Act, which is an anti-fraud statute. However, defendants who are merely negligent are liable for materially false statements in a defective registration statement pursuant to Section 11 of the 1933 Act.

Dart Corp. engaged Jay Associates, CPAs, to assist in a public-stock offering. Jay audits Dart's financial statements and gives an unqualified opinion, despite knowing that the financial statements contain misstatements. Jay's opinion is included in Dart's registration statement .Larson purchases shares in the offering and suffers a loss when the stock declines in value after the misstatements become known. If Larson succeeds in the Section 10(b) and Rule 10b-5 suit, Larson would be entitled to

The amount of any loss caused by the fraud. ( purchase price less market price = damages) - Victims of fraudulent misstatements are entitled to rescind the transaction OR recover their losses caused by their reliance on the false statements.

If a married couple filing jointly has active income of $220,000 and net investment income of another $200,000, how much must they pay to satisfy their Medicare surtax obligation?

The couple's Medicare surtax should be 3.8% of the lesser of (a) net investment income ($200,000 in this case), or (b) the excess of AGI over the AGI threshold ($170,000 in this case-$420,000 minus $250,000). Therefore, the correct tax is 3.8% of $170,000, which is $6,460.

Which of the following might prevent a plaintiff investor from recovering from a defendant accountant in a Section 18(a) lawsuit?

The document containing the false statement was not filed with the SEC. The plaintiff did not read the false document. The defendant established that it acted in good faith and did not know of the error in the document.

What is the tax penalty (employer shared responsibility fee)?

The fee is triggered if at least one employee does not receive qualifying coverage, shops on the ACA Marketplace (internet sites operated by either the state or the federal government where individuals and small businesses can compare policies and rates and perhaps qualify for government subsidies), and is eligible for a federal premium subsidy.

Dart Corp. engages Jay Associates, CPAs, to assist in a public-stock offering. Jay audits Dart's financial statements and gives an unqualified opinion, despite knowing that the financial statements contain misstatements. Jay's opinion is included in Dart's registration statement.Larson purchases shares in the offering and suffers a loss when the stock declines in value after the misstatements becomes known. In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove that

The misstatements contained in Dart's financial statements were material. - A Section 11 plaintiff does not have the burden of showing that defendants acted fraudulently or carelessly and need not establish reliance. The primary things that plaintiffs must show to win their Section 11 claims are that there was a material misstatement in the registration statement on the effective date; that they can trace their shares to that registration statement; and that they suffered damages.

The IRS uses an 11-part version of the common law test - Behavioral control (Instructions)

The more instructions given as to when and where to work, what tools or equipment to use, what assistants to hire, where to purchase supplies, what sequence to follow, and so on, the more likely that control is being exercised and the worker is an employee.

Under the Section 10(b) Rule 10b-5 antifraud provisions of the Securities Exchange Act of 1934, which of the following conditions must a plaintiff prove to recover damages from an accountant?

The plaintiff relied on the accountant's intentional misstatement of material facts.- Section 10(b)/Rule 10b-5 are fraud provisions; they do not remedy mere negligence.

Quincy buys Teal Corp. common stock in an offering registered under the Securities Act of 1933. Worth & Co., CPAs, give an unqualified opinion on Teal's financial statements, which were included in the registration statement filed with the SEC.Quincy sued Worth under the provisions of the 1933 Act that deals with omission of facts required to be in the registration statement. Quincy must prove that

There was a material misstatement in the financial statements - The 1933 Act requires only a showing of material misstatement. If the CPAs made a significant misstatement, they may be held liable.

An accountant will be liable for damages under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 only if the plaintiff proves that

There was a material omission. - A plaintiff must generally show several things to win a Section 10(b) case. A CPA must have (1) intentionally or recklessly (2) made a misstatement of material fact or omitted a material fact (3) that was relied upon by the defendant.

employee

To be precise, we might use the term "common law employee" in order to distinguish most employees from that category known as "statutory employee" that is discussed later in this lesson.

The Blazing Saddles Corporation (BSC) is covered by the Federal Unemployment Tax Act (FUTA). Several of its workers have left BSC lately. Which one of the next workers is entitled to collect unemployment compensation benefits from BSC?

Toddrick had worked for BSC for seven years as a welder in its trailer division but was let go when BSC decided to stop making trailers because that division was losing money. - Toddrick was involuntarily separated because of business reverses and is definitely entitled to recover unemployment compensation benefits.

If Sally is a common law employee, she:

Traditionally has been allowed to deduct unreimbursed business expenses, like mileage, if she itemizes and they constitute more than 2% of her adjusted gross income. However, the Tax Cut and Jobs Act of 2017 eliminated the unreimbursed business expense deduction from 2018 until 2026.

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, which of the following must be proven by a purchaser of the security?

Under Section 11 of the 1933 Act, a plaintiff need not show either reliance or fraud (or even negligence) by the defendants. However, defendants can win the day if they can disprove reliance. And the defendants other than the issuer can win if they can establish that they acted with due diligence. The primary things that plaintiffs must show to win their Section 11 claim are that there was a material misstatement in the registration statement on the effective date; that they can trace their shares to that registration statement; and that they suffered damages.

Extending Coverage for Children

Under the ACA, parents who purchase family insurance plans may provide coverage for their adult children under age 26, even if the children are married, financially independent, not living with their parents, and/or entitled to purchase health insurance at their own work.

Petty Corp. makes a public offering subject to the Securities Act of 1933.In connection with the offering, Ward & Co., CPAs renders an unqualified opinion on Petty's financial statements included in the SEC registration statement. Huff purchases 500 of the offered shares.Huff brings an action against Ward under Section 11 of the Securities Act of 1933 for losses resulting from misstatements of facts in the financial statements included in the registration statement. Ward's weakest defense would be that

Ward was not in privity of contract with Huff. - You Answered Correctly! This is no defense at all. Privity of contract is absolutely not required in a Section 11 action.

An unemployed CPA would generally receive unemployment compensation benefits if the CPA

Was fired as a result of the employer's business reversals. - Unemployment compensation is given to persons who lose their jobs and are not fired for cause. If an employer changes or "downsizes" his business, the newly laid-off worker is generally eligible for benefits.

Minimizing Out-of-Pocket Expenses

When Congress enacted the ACT, it focused more on extending coverage than reducing costs, but it did reduce out-of-pocket expenditures (e.g., deductibles and copays) for most poor people who received coverage. Total annual out-of-pocket expenses—including deductibles but not including the cost of insurance premiums—for plans under the ACA were $8,550 for an individual plan and $17,100 for a family plan in 2021. (Those numbers, and many others used in the ACA, are inflation-adjusted annually and therefore may be higher when you read this. They might also be altered by specific policies.) Once these limits are met, all covered costs will be paid by the insurer. Plans with higher premiums typically carry lower out-of-pocket maximums.

Employer Mandate

When the ACA was enacted, approximately half of Americans received their health coverage via employer insurance plans. To ensure that employer coverage continued, the ACA required "Applicable Large Employers" (ALEs) to either (a) offer "minimum essential coverage" to at least 95% of their full-time employees and their dependents up to age 26, or (b) pay a tax penalty (known as the employer shared responsibility fee). This requirement is known as the employer mandate. Before the ACA, approximately 90% of these large companies were already offering health care coverage.

What is "minimum essential coverage"?

With few exceptions, the employer must offer a group plan. Coverage must be affordable, costing less than 9.83% in 2021 of the employee's income. Coverage must provide "minimum value." (The employer covers at least 60% of the cost.)

Ted buys Synchotic Corporation shares based on Synchotic's announcement of record earnings. But just a few days later, on July 1, 2010, Synchotic admits that its earnings had been artificially inflated via fraudulent earnings management. Its stock price drops dramatically that day, and Ted makes a significant loss. Ted wishes to bring a 1934 Act securities-fraud lawsuit against Synchotic. In terms of the statute of limitations, when must Ted bring his lawsuit?

Within two years of when he should have discovered the fraud and within five years of the fraud. - This answer is correct because it uses the correct statute of limitations (2yr/5yr, rather than 1yr/3yr), and notes properly that the plaintiff must meet both deadlines.

Under the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acts

Without good faith. - This provision requires an untrue statement and an intent to defraud. Defenses include lack of knowledge that the statement was false and acting in good faith.

Eliminating Gender (and Other) Discrimination

Women use more health care services than men, on average, in part because they can become pregnant. Before the ACA, insurers could deny coverage to women or charge them more on grounds of gender. The ACA prohibits this.

Independent contractors

often referred to as freelancers, consultants, contractors, temps, specialists, project workers, and so on.